How important is control as an IR35 status factor?

One of the key elements that determines whether IR35 applies to a contract is ‘control’ – whether or not a client exerts control over a worker in a way that demonstrates that a client-employee relationship exists.

This article explores the importance of control in IR35 and its impact on both workers and clients.

What is control and direction in IR35?

Control is one of the three key factors HMRC uses to determine a worker’s employment status for IR35 purposes.

The other two factors are “mutuality of obligation” (whether the client is obligated to offer work and the worker is obligated to accept it) and substitution (whether the worker can send a substitute to perform the work instead of themselves).

Control refers to the degree of influence a client has over how, when, and where a contractor performs their work.

The level of control a client exercises over a worker is crucial in determining whether that worker is inside or outside IR35. See also our guide to inside vs outside IR35.

How does HMRC view ‘control and direction’

HMRC discusses its approach to control and other IR35 factors in its Employment Status Manuals.

Unsurprisingly, determining whether control applies is nuanced and not black and white.

As HMRC states:

The right of control may be explicitly set out in the contract or merely implied.

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The important question is whether the hirer could ultimately decide how the work is done if they wanted to.

HMRC also considers that the absence of control over ‘how’ work is done does not necessarily mean that a contract falls outside IR35, particularly when hiring experts in their field.

You can read three examples of HMRC’s interpretation of control here.

Control – things to avoid in a contract

It is important to demonstrate that a client does not influence how the contractor performs their services.

Here are some things that should not appear in either the lower-tier or upper-tier contracts for services:

• The contract specifies that the contractor will be supervised by a line manager or similar company employee.
• The contract specifies start and end times for the contractor’s work, as well as break times.
• The contract includes provisions for holidays or sickness, which may indicate an employment relationship.
• Any clauses that give the client the right to control or supervise how the work is carried out.

Such provisions suggest that the contractor may not have the degree of autonomy typically associated with self-employment.

As a result, control and direction could well be seen to exist, and the contract could fall inside IR35.

Steps to prove that you are not under the control and direction of your client

Review your contract

Review your contract to ensure that it accurately reflects the nature of your working relationship. Look for clauses that could suggest you are under the client’s control or direction, such as those listed above. Try to negotiate changes if they are inconsistent with the terms of a genuine business-to-business relationship.

Provide evidence of autonomy

Provide evidence that you have control over how you carry out your work. For example, you can show that you decide when and where you work, choose your own tools and equipment, and determine how to complete the work.

Get a professional opinion

If you are unsure about the IR35 status of a contract, you may want to seek professional advice. A specialist can help you review your contract and working practices.

Significant legal cases where control has been an important element

Several IR35 and employment status cases demonstrate the importance of control in determining status.

Dragonfly Consultancy Ltd v HMRC (2008)

In this case, a software consultant working through a personal service company was found to be inside IR35 because he was subject to significant control from his client.

The client had the power to direct the consultant’s work and could terminate the contract without notice, which pointed to an employment relationship.

It was accepted that control over the how in the case of a skilled man is not determinative, however the regular appraisals and monitoring went beyond what would be expected of a self employed individual genuinely in business on own account.

Some of the contractor’s later contracts had been amended specifically to remove clauses which might demonstrate control. Ironically, this was treated as evidence of IR35 avoidance.

Autoclenz Ltd v Belcher and Others (2011)

In this case, the UK Supreme Court held that a group of car valeters were, in fact, employees.

The court found that the workers were subject to significant control from the client, which pointed towards an employment relationship.

Jensal Software Ltd v HMRC (2017)

In this case, a software developer working through a personal service company was found to be outside IR35.

The judge found that he was not subject to significant control from his client.

The level of control exercised did not go beyond that which was usual for an independent contractor. In balancing all of the factors I conclude that Mr Wells was not subject to the degree of control which would be necessary to constitute a contract of employment.

Christa Ackroyd Media Ltd v HMRC (2019)

In this case, a television presenter working through a personal service company was found to be inside IR35 due to the level of control exercised by the BBC.

…it did not matter that Ms Ackroyd was not contractually bound by the Editorial Guidelines because both parties understood that the BBC could enforce those Guidelines if necessary.